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(a) (4 marks) Assume that at the beginning of 2007, the expected interest rate for 2007 and 2008 is 2.8%, for 2009 is 5%, for
(a) (4 marks) Assume that at the beginning of 2007, the expected interest rate for 2007 and 2008 is 2.8%, for 2009 is 5%, for 2010 and 2011 it is 3.65%. What is the average inflation rate, over the five year period, if the real rate of interest is 1.25%? Do NOT use an arithmetic average. (***Carry all decimal places for interim calculations, round final answers to 4 places. ***) (b) (4 marks) Suppose that you buy a 6% annual coupon bond for $975.81. The bond has 8 years to maturity. Three years after purchasing he bond you sell it for $990. What is the effective annual holding period yield
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